Standing Committee A

[Mr. Joe Benton in the Chair]

Child Trust Funds Bill

George Osborne: On a point of order, Mr. Benton. I am sorry to detain the Committee, but I seek your advice on an article in the Saturday edition of the Financial Times. It contained details of regulations that will be made under the Bill, although the Minister has repeatedly told us that they have not been determined and that they will be published shortly. In particular, the article revealed that the Treasury is expected to settle on £10 as the minimum contribution to a child trust fund. We have debated that issue repeatedly in Committee, and I was surprised to read about it in the Financial Times. Have you had any indication from the Government that they are ready to publish the regulations, as they have promised to do during proceedings on the Bill? If not, do you not agree that it is unfortunate that the details should appear in a national newspaper before they are presented to Parliament?

Joe Benton: I have had no such indication. The comments in the newspaper are not a matter for me, but the Minister might like to make an observation.

Ruth Kelly: I should like to make an observation. I can confirm to the Committee that I have not yet taken the relevant decision, and I have absolutely no idea how anyone came to that conclusion.Clause 13 Relief from income tax and capital gains tax

Clause 13 - Relief from income tax and capital gains tax

Amendment moved [15 January]: No. 155, in 
clause 13, page 7, line 26, at end add—
 '(6) Before this section comes into force the Treasury shall lay before each House of Parliament a report setting out the additional costs to the Exchequer over the period from 1st April 2004 to 31st March 2022 of relief from income tax and capital gains tax as a consequence of the introduction of child trust fund accounts, together with an assessment of the scope for greater tax avoidance activity.'.—[Mr. Laws.]

Joe Benton: I remind the Committee that with this we are discussing the following: Clause stand part.
 Amendment No. 159, in 
clause 27, page 15, line 12, after '31', insert 
 'and subject to the provisions of section 13'.

David Laws: Good morning to you, Mr. Benton, on the last full day of our proceedings.
 The amendment invites the Treasury to table to Parliament a report setting out the cost to the taxpayer of the measures in the Bill, particularly those that 
 allow for greater tax relief than is usually the case. The context is our concern about whether the Treasury is dealing fairly and even-handedly with lower-income groups, as opposed to the upper-income groups that will benefit from extra tax relief. 
 Obviously, I shall not lead us away from the subject of the amendment, but the comments by the hon. Member for Tatton (Mr. Osborne) on the Financial Times article, which suggested that the subscription level would be £10 rather than £5, indicate that the Government might, as we feared, be moving in the direction of favouring upper-income over lower-income groups. The Financial Secretary denied the story, which suggested—I raised this suspicion last week—that low-income families will be unable to save £5 a month and will be forced to save at least £10 a month. We shall see whether the Minister or the story is correct when the regulations come out. I would wager a small sum on the Financial Times being correct, but we shall see. [Hon. Members: ''Disgraceful.''] Well, it is disgraceful if details have been leaked before the regulations have been issued.

Joe Benton: Order. We should return to the amendment.

David Laws: The issue in the amendment is how the Government treat upper-income groups in respect of the child trust fund. At the end of last week's proceedings, we referred to exchanges on the issue in the Treasury Committee and to the Treasury's Mr. Holgate. He admitted that, in the Treasury's view, the assumptions that had been made about the tax cost of setting aside income tax settlements legislation were quite arbitrary. My hon. Friend the Member for North Norfolk (Norman Lamb) pressed Mr. Holgate further about the assumptions and asked him whether he could share them with the Committee. Mr Holgate replied:
 ''To offer you something would be to pretend to have a degree of wisdom on this subject which nobody possesses.'' 
That raises the question whether the Minister's estimate of a cost of up to £10 million per year for laying aside the tax legislation is reasonable.

George Osborne: Does the hon. Gentleman share my regret that Mr. Holgate has not been answering for the Government in this Committee? He is not as polished as the Minister and therefore lets slip what are the holes in the proposals.

David Laws: The hon. Gentleman makes a powerful point. However, having taken evidence from Mr. Holgate on occasion in the Treasury Committee, I can tell the hon. Gentleman that Mr. Holgate is not always as insightful as the Minister. As he is not here to defend himself I will stick more or less to the script of the evidence.
 This is a vital issue, and I come back to the important points made by the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), who said to the Minister: 
 ''I think you will accept that, by not applying the income tax settlements legislation which is embedded in income tax practice right across the board, for every kind of savings provision you can make for your children a major step has been made, and it is not 
just an issue of the sums of money involved but also the question of equity. There is a specific provision in the Bill to exempt the income tax settlements legislation and you do have to take that on board as being a significant step.'' 
In the exchange that follows an attempt is made to go into more detail about how the Treasury has come up with its estimate of less than £10 million a year as the cost of disallowing the tax legislation. 
 Again, Mr. Holgate gives information based on how taxpayers would need to allocate their cash to avoid tax in comparison with other savings vehicles. He estimates that each individual could legitimately avoid £33.60 of tax each year. I am not sure whether that is not a slightly low figure, in view of the returns that might be expected on savings. To come up with the figure of less than £10 million a year the Treasury must be estimating the number of people who will exploit the opportunity even to that small degree. It would be useful to hear from the Minister what that number is. 
 Later Mr. Holgate states that clearly, over time, the costs of that tax relief will rise and then level off at about £600 by the age of 18. That is a considerable increase on the figures that have been mentioned for the earliest years of the fund. Presumably the growth of that tax relief is one factor in the Treasury's decision to disallow the income tax settlements legislation. 
 The amendment therefore invites the Minister to tell us the estimates for the cost of the measure in the early years, and it invites us to consider whether the Exchequer will use that tax relief sensibly. It asks the Treasury to cost the tax relief right up to 2022, the end of the first CTF accounts starting in 2004. Clearly that cost will rise steeply over time. That appears to be the implication of the evidence that Mr. Holgate gave to the Treasury Committee. It also appears to be the implication of the comments that the Financial Secretary made on Second Reading, when she said: 
 ''As a further incentive, income tax settlements legislation will not apply to child trust fund accounts. Given that such an account will run for 18 years, the settlements legislation could have caught large numbers of people in the later years of the account.''—[Official Report, 15 December 2003; Vol. 415, c. 1344.] 
The implication of the comments by the Financial Secretary and Mr. Holgate is that the Treasury anticipate that the up-front costs of disallowing the tax legislation will be quite modest, but that the costs will rise quite steeply over time. On the basis of Mr. Holgate's figures of £600 in the final year of the CTF account and £33.60 in the first year, I calculate the multiplier to be something like 18. In crude terms, a tax relief that could cost up to £10 million initially would cost £180 million or more by the end of the relevant period. I am sure that the Financial Secretary will pick up on that point when she responds. 
 We should be concerned about the costs for a number of reasons. One is that the tax cost of such savings schemes always increases significantly over time, and the Treasury has a record of underestimating the extent to which people will take up such opportunities. We might think, for example, of the tax costs of the PEPs and TESSAs that were introduced under Conservative Governments and curbed when the Labour party came to power in 1997. One reason 
 for curbing those savings plans and the tax relief associated with them was the fact that the tax relief was growing out of control and the tax benefit was going to people who were extremely wealthy. 
 I should not have thought that the Minister would want to see that pattern repeated with this proposal, particularly because we are debating tax relief in the context of many other aspects of the Bill which will adversely affect people on lower incomes in respect of disregard for benefits and deprivation of capital. There are separate amendments relating to those matters, but that is the context in which we are debating this issue. 
 I return to the comments that I made to the Minister at the beginning of the debate. I cannot see, in principle, any reason that we would wish, in the child trust funds, to extend greater tax relief to people on higher incomes than is already allowed for. I do not want to see the Exchequer spending money on the Bill to incentivise savings for people on higher incomes. Those people already have the money to save, and they are the ones who already save. If the Bill is to have value, it should lie in Government giving incentives to save, and those should be directed towards people on lower incomes. 
 If the Committee is to agree to the Government's proposal to disallow the tax legislation—a matter that caused the hon. Member for Newcastle upon Tyne, Central a great deal of concern—we need answers to two questions. The first concerns the Treasury's best estimate of the cost, how that cost will increase over time, and what assumptions underlie those estimates. 
 The second question is why the Financial Secretary and the Government have decided, in any case, to disallow the tax legislation. I assume it is because the hon. Lady thinks that the Bill and its taxation elements would become too complex over time if people were trying to unravel the effects of being in breach of the existing tax legislation or of going above the ceiling of £100 that they are allowed to earn on interest income without paying tax. 
 Perhaps the Treasury is also concerned about how to separate the returns from the Government's initial contribution to the fund from the contributions that would be made by outside parties. If so, I would like to hear more about that from the Minister. In her view, does the degree of complexity create an overwhelming case for disallowing the tax legislation? Has she considered any other ways in which the existing legislation could continue to be applied in a way that was practical and saved the Treasury the cost of the tax relief, which could rise significantly over time?

Ruth Kelly: I do not want to rehearse all the arguments about the minimum contribution method. We have had that debate once in Committee, and will no doubt have it again on Report. I can offer no comment on the story from the Financial Times. The decision on the minimum contribution is intimately linked to the charge cap level.

David Laws: Will the Minister confirm whether anybody in the Treasury told the Financial Times that the minimum contribution level would be £10?

Ruth Kelly: I do not see how they could have done, as the decision has not been made. However, as I have said, I do not want to rehearse the arguments that we have already had in Committee.
 The hon. Gentleman referred to the impact of income tax settlements legislation on child trust funds. He has largely missed the point. The child trust fund is not likely to be used as a vehicle for tax avoidance. That is partly because contributions made by a parent would be tied into the CTF account until the child reached the age of 18, but also because the money will belong to the child, rather than the parent. In other children's accounts, the parent has access to the money as the child and the fund mature. That situation is much more likely to be used for the purposes of avoiding income tax. 
 The hon. Gentleman asks whether it is merely a matter of complexity. Obviously, it would be complex to apply the tax settlement legislation, but the fact is that we would want to apply it only if we thought that there was a substantial likelihood of income tax being avoided through the child trust fund. 
 The hon. Gentleman asks about the figures involved. The CTF accounts will run for 18 years, and the tax legislation might have caught large numbers of people in the later years. Parental contributions of £100 a year would have tax consequences after 11 years, and contributions of £200 a year would have tax consequences after six years. In other words, the settlements rule would be triggered after 11 years and six years respectively on relatively modest contributions to the account, and contributions of £100 or £200 are what we want to see. I do not think that many people would argue that such behaviour was linked to tax avoidance. 
 The Government publish estimates on the cost of tax relief twice a year, at the time of the Budget and pre-Budget reports. The hon. Gentleman asked how much the tax incentives on a child trust fund would cost the Government. We have said that the costs are expected to be negligible in the early years and to rise over time. I can reaffirm that, as was made clear to the Treasury Committee, over time the cost remains small in relation to the cost of an endowment. 
 The amendment would require a report on the scope of tax avoidance in CTF accounts. Reports on tax avoidance and compliance and child trust funds would form part of the annual report that the Paymaster General makes to Parliament on the Inland Revenue's activities, alongside reports on all other areas operated by the Revenue. I believe that the proposals for tax relief for child trust funds fit with the objectives of encouraging long-term savings and the building up of an asset for the child. I therefore recommend that the Committee reject the amendment if the hon. Gentleman decides not to withdraw it.

David Laws: I am grateful to the Minister for her comments. I appreciate that the Exchequer has made a low estimate of the cost of this particular measure. However, such estimates have a habit of going astray
 over time. May I gently remind the Minister of the estimates that the Treasury made just a few years ago for the costs of the film industry tax relief? That was supposed to cost £30 million or £40 million, but within a very short period the estimate had risen to something like £400 million a year.
 The Minister said that many people would not wish to take up the tax avoidance opportunity because the beneficiaries would ultimately be children rather than themselves. However, there are many individuals who, precisely because they have a high income and large tax liabilities, want to minimise those liabilities in any way they can, including giving money to children. If that minimises their tax liability, it reduces the amount of money going to the Exchequer and the amount available for more worthwhile schemes. 
 I will not press the amendment to a Division, but I hope that the Minister will keep the issue under review. In the Select Committee, the Minister told the hon. Member for Newcastle upon Tyne, Central that she would go away and consider the issue in the general context of when the income tax settlements legislation should apply. 
 I hope that the Minister will confirm that the annual Treasury booklet, which shows the cost of tax relief, will include an estimate of the cost of this relief. I hope also that, through that mechanism, the annual Budget statements and the pre-Budget reports, we can keep an eye on whether the tax relief grows in line with the Treasury's estimates. I hope that if it does not we will have the opportunity to intervene. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 13 ordered to stand part of the Bill. 
 Clause 14 ordered to stand part of the Bill.

Clause 15 - Information from account providers etc.

George Osborne: I beg to move amendment No. 181, in
clause 15, page 8, line 6, leave out paragraphs (b) to (f).

Joe Benton: With this it will be convenient to discuss the following:
 Amendment No. 62, in 
clause 15, page 8, line 12, after 'fund', insert— 
 '(ee) anyone responsible for the determination of matters specified in section [income disregard for purposes of income-related benefits, etc.](2),'. 
New clause 3—Income disregard for purposes of income-related benefits, etc.— 
 '(1) In determining the matters specified in subsection (2), no regard shall be had of income and gains arising on— 
 (a) Inland Revenue contributions to, 
 (b) subscriptions to, and 
 (c) investments under 
 a child trust fund. 
 (2) Those matters are— 
 (a) eligibility for, 
 (b) entitlement to, and 
 (c) levels of
 the benefits and credits specified in subsection (3) in respect of the holder of a child trust fund. 
 (3) The following are specified in this subsection— 
 (a) child tax credit, 
 (b) Council Tax benefit, 
 (c) housing benefit, 
 (d) income support, 
 (e) income-based jobseeker's allowance, and 
 (f) working tax credit.'. 
New clause 8—Income disregard for purposes of benefits and tax credits— 
 'The value of a child trust fund will be wholly disregarded with respect to the calculation of entitlement to all benefits and tax credits in respect of— 
 (a) the parents of children holding child trust funds, 
 (b) children holding child trust funds, and 
 (c) persons holding child trust funds who are aged 18 or over.'.

George Osborne: I begin by giving hon. Members some good news: a member of the Committee has just become eligible, as a parent, for a child trust fund, as the wife of the hon. Member for Witney (Mr. Cameron) gave birth to a baby daughter yesterday. The first thing that he said to me was that he was looking forward to receiving the child trust fund voucher.

Jim Fitzpatrick: Where is he?

George Osborne: The Government Whip presses me to say why the hon. Member for Witney is not present. We have relaxed terms here. The hon. Gentleman is on paternity leave, but he is making an exception and breaking it next Tuesday evening to return for important Divisions in the House. He may also be around on Wednesday when we think we will be privileged to have early access to the Hutton report.
 Having tried your patience, Mr. Benton, I will move on to the much more interesting subject of the amendments. The clause deals with the requirement for account providers to provide information to the Inland Revenue. Amendment No. 181 probes whether the wide-ranging powers proposed for the Revenue are really necessary. We have not yet seen the regulations, but the clause provides that they may require any relevant person 
 ''(a) to make documents available for inspection on behalf of the Inland Revenue, or
 (b) to provide to the Inland Revenue any information relating to, or to investments which are or have been held under, a child trust fund.''
 The relevant persons include not just account providers, for whom a strong case can be made that they should fall within the remit of the clause, but any person who holds a child trust fund, any person issued with a voucher, any person opening a child trust fund, any person who manages a child trust fund and, indeed—it is striking—anyone receiving child benefit. That is pretty much every parent in the country. 
 Is it really necessary to give the Inland Revenue such wide-ranging powers, especially in respect of anyone receiving child benefit? That gives the Revenue 
 enormous scope. The amendment would restrict its power to requesting information documents from account providers only. They should have to provide information and it is important that they stick to the rules on matters such as the maximum subscription limits and the fact that the CTF scheme is set up on time, and so on. That is wholly right and proper, but is it really necessary to give the Revenue such extensive powers to poke its nose into everyone's business? I am happy to be convinced by the Minister. 
 Amendment No. 62 and new clause 3 are more important. They are an attempt to protect child trust funds from the clutches of the means test, and to prevent the Government from taking back with one hand what they have given with the other. At present, the Bill does not protect a child trust fund from being taken into account when an 18-year-old is being assessed for jobseeker's allowance or income support. Indeed, in such circumstances, one could argue that if an 18-year-old were applying for jobseeker's allowance or income support, the best thing that they could do is spend most of their child trust fund as quickly as possible. 
 If we want the child trust fund to target lower-income families, to help people to understand the benefits of saving and investing, and to encourage children to develop the savings habit—to use the words in the policy document—it seems to be totally self-defeating if we demonstrate that after 18 years' saving, the whole thing can be snatched away from them. I am not alone in thinking that: the Treasury Sub-Committee, in its excellent report on child trust funds, made that point strongly. In its conclusions, it said: 
 ''There is a potential interaction of the Child Trust Fund with the welfare system (or any other entitlements that might be affected by possessing an asset) which might deter additional contributions to the Child Trust Fund accounts from family and friends, if the result were to be a potential reduction in benefits for the child in the future, or an actual reduction in benefits for the contributor. The Government therefore needs to clarify the extent of this potential interaction, in order to overcome fears of potential disadvantage to the child in later life. We believe it is essential that this is done before the scheme starts, and we therefore welcome the statement by the Financial Secretary that this will be the case. We believe it would be helpful if these matters were clarified and resolved during the passage of the Bill through the House.'' 
The Sub-Committee made it clear that it thought the issue a problem, and when one considers the answers given in the evidence sessions by both the Minister and Mr. Holgate, it is not difficult to understand why. The latter was pressed by the hon. Member for Newcastle upon Tyne, Central, who asked: 
 ''How does this Child Trust Fund interact with income-related benefits?'' 
Mr. Holgate said: 
 ''When the child reaches 18, were nothing to change between now and then, then the normal rules would apply. It would be part of the child's assets.'' 
The hon. Gentleman continued: 
 ''So my parents have saved this money for me and, as a result, I cannot claim Job Seeker's Allowance?'' 
Mr. Holgate responded:
 ''We are aware of the implication and we cannot say at the moment what exactly we plan to do about it—but we are fully aware of the implication that you draw.'' 
The hon. Member for Wallasey (Angela Eagle) then chipped in with a surprisingly aggressive question: 
 ''Are you saying that you might be considering doing something about income-related benefits and the way that the benefit rules interact with savings at that point of 18? It does seem absurd.'' 
Mr. Holgate said—shock, horror— 
 ''The problem is obvious. The problem has occurred to us but we cannot say this afternoon what we are going to do about it.'' 
The hon. Lady asked: 
 ''You are looking at it, however?'' 
Mr. Holgate said: 
 ''Yes.'' 
It is clear from Mr. Holgate's evidence that the Treasury is aware that there is a problem. The Minister was, of course, more circumspect when she was questioned. She said, to paraphrase her, ''We are aware there is a problem, but we would normally make an announcement at the time of the pre-Budget report or in the Budget.'' I am happy to take an assurance from the Minister today that there will be something about the issue in the Budget, even if she cannot say what it is. I do not understand why it cannot be revealed to the Committee or why it is so Budget-sensitive. We are debating this important clause, but we cannot see what the Government have in mind. 
 The Minister said on Second Reading that she has increased the threshold at which savings reduce eligibility for means-tested benefits from £3,000 to £6,000. That is welcome. As she pointed out, when I made my speech on Second Reading I was not aware that she had done that, nor was the Chairman of the Treasury Committee, so I thought that I was in good company. The change goes some way to addressing the problem, but it is not a long-term solution, unless she says that the threshold will regularly be increased to avoid this trap. 
 On Second Reading, the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), said: 
 ''An 18-year-old receiving jobseeker's allowance or income support will be in an invidious position if his benefit is disregarded because of the extra income provided by the allowance. The Financial Secretary has come up with one or two surprises already, and I hope that that point may be clarified today, but if that is not possible it must be clarified in Committee.'' 
He went on: 
 ''I am delighted to hear from the Financial Secretary that the disregard has been increased from £3,000 to £6,000, but it was pointed out that there is a barrier somewhere along the line. This scheme has the potential to have profound effects, but if the wrong message is given to those who will be adding to the savings—parents, grandparents and friends—that will do it no good.''—[Official Report, 15 December 2003; Vol. 415, c. 1357.] 
The hon. Gentleman made that point forcibly, and he, like me, wants this scheme to work. I agree with him that if the Minister is going to clarify her position she should do so to the Committee, because if it remains the case that a child trust fund will interact with means-tested benefits at the age of 18, it is possible to envisage there being people, particularly among the poorest in our society, who will derive almost zero benefit from such a fund as it will be taken away at the age of 18 if they are not in employment.

David Laws: I can talk briefly about this group of amendments and new clauses because the hon. Gentleman has outlined the key issues clearly. We have tabled new clause 8, the intention of which is similar to that of new clause 3: to try to ensure that the proceeds of the child trust fund are entirely disregarded in the calculation of the entitlement to benefit of all those associated with the CTF account—the children who hold them, the individuals who end up with a maturing account once they reach the age of 18, and the parents of children holding an account.
 I thought that that would be the Government's intention. Surely we do not want to penalise people for saving in the account or to make the child trust fund and the whole benefit system any more complicated than it already is. I compare and contrast the Government's approach to this issue so far with their determination to ensure that people who make large contributions to the CTF accounts do not end up having to pay additional tax. We have discussed the Government's intention to disallow some of the existing legislation designed to counter tax avoidance. 
 Surely if it is right for people on higher incomes to want to save a lot into the CTF account, and if the Government want to make sure that the system is simple for them and that they do not end up paying extra tax as a consequence of making large contributions, the last thing that the Government would want to do, given their commitment to dealing with disadvantage and assisting people on low incomes, is to penalise those people who rely on the benefit system and who may end up having their benefits docked as a consequence of having money in a CTF account. 
 There was a clear indication in the Select Committee that the Minister appreciated the nature of that problem and intended to propose measures to deal with it. On Second Reading, there was a small announcement about that. Some hon. Members did not pick it up at the time, but the hon. Member for Tatton has referred to it. However, it deals with only a small part of this issue. I hope that the Minister will make a clear commitment to accept these excellent amendments and new clauses or to suggest measures that would have the same effect. 
 The Minister was willing to discuss the cost of the tax relief in the Bill in relation to CTF accounts and the disallowance of income tax settlement legislation. Will she be clear about what she anticipates as the cost consequences of accepting the amendments and new clauses so that we can know how much revenue will be at stake? I hope that the Minister will now take the opportunity to clarify the Government's position.

Ruth Kelly: The two new clauses are designed to ensure that the child trust fund is not taken into account when entitlement to benefits is assessed. I can reassure the Committee that child trust fund assets and the income and gains on those assets do not affect family benefits and tax credits before the account reaches maturity when the child reaches the age of 18. After the person's 18th birthday, the account ceases to
 be a child trust fund account. The Government's intention is that when the account matures, the funds can be rolled over into a tax-effective savings vehicle if the account holder wants. Such vehicles may vary 15 years from now, but one imagines that there will be some way of rolling over the money in the fund account.
 Income from investment in tax-free saving schemes does not affect entitlement to tax credits, but I acknowledge that concern has been expressed about how saving in child trust funds and other vehicles might affect an individual's entitlements to benefits such as income support when they become an adult. The treatment of capital in income-related benefits needs to strike a sensible balance between providing targeted state support and not unfairly penalising those who have acted responsibly by saving. 
 I was surprised that the hon. Member for Yeovil (Mr. Laws) said that I made a small announcement on Second Reading, as I thought that it was a significant announcement, despite the fact that no one seemed to pick up on it. [Interruption.] The hon. Member for Tatton says that I did not leak it. It is my intention never to leak policy. 
 As a first step, I announced on Second Reading that from 6 April 2006 we will increase the £3,000 threshold above which savings reduce eligibility to income support, jobseeker's allowance, housing benefit and council tax benefit to £6,000. We are doubling the threshold in line with pension credit. The first child trust fund accounts will not start to mature until 2020, and it is unlikely that the rules on income-related benefits will still be the same. Nevertheless, I thought that it was important to announce the increase to reassure parents, carers, grandparents and friends that they can contribute to the fund in the knowledge that the child will not be penalised in the future by savings made now. 
 I announced the doubling of the threshold on Second Reading, but I also said that it was the first step. The hon. Member for Yeovil will see in the pre-Budget report that we said that we will keep the treatment of capital under review, and we will do that as the account progresses.

David Laws: I never know when the Financial Secretary is going to end her comments, so she may be about to answer my earlier question. If not, will she tell us what she estimates as the cost of the new clauses?

Ruth Kelly: That is an incredibly difficult calculation. If we disapplied the capital benefits for just the child trust fund at the age of 18, it would be difficult to segregate that from other capital that the child could have available and the fact that those funds could be rolled into other savings vehicles. It is not an insignificant calculation, so I am afraid that I cannot give the hon. Gentleman an exact figure. However, I can say that if the capital rules were to be abolished altogether, we would not be talking about trivial sums. To give a ballpark figure, it would be £100 million or so.

David Laws: I again ask the Minister whether she feels that her treatment of how people's benefit entitlement will be affected by child trust fund accounts is even-handed when she is disallowing tax avoidance legislation for people on upper incomes. There are equal problems in assessing the cost of each measure, but she has been willing to set aside the tax avoidance legislation. Why is she not willing to be more generous on benefits legislation?

Ruth Kelly: The Liberal Democrats want the Government to spend on every conceivable occasion, but we must target spending appropriately. Increasing the threshold of capital to be disapplied for income-related benefits from £3,000 to £6,000 was a generous first step, and I am surprised that it was not welcomed more fully.

David Laws: My point is that the Government are targeting the wrong people. They are targeting for exemption those people on upper incomes who will make large contributions and who can take advantage of the setting aside of tax avoidance legislation. They should target those on low incomes, whose benefit entitlement will be affected by the legislation.

Ruth Kelly: Somehow, the hon. Gentleman thinks that the child trust fund vehicle is a tempting way for wealthy parents to avoid tax. Our assessment is that it will scarcely be used as a tax avoidance vehicle, for the reasons that I outlined.
 Amendment No. 181 would restrict the categories of relevant persons from whom the Inland Revenue could obtain information. We aim to keep the administration of child trust funds as simple as possible, which is why we have built on existing systems. Nevertheless, if we are to ensure that accounts operate as smoothly as possible, we need powers to collect information. 
 In some cases there may be doubt about the validity of a child trust fund account. For example, a father and mother may each submit what appear to be valid vouchers. We might need to verify that the responsible person is who they say they are, or that the child is resident in the United Kingdom. In such cases, we might have to ask for information from those persons listed in paragraphs (b) to (f), or we might need to collect information on a family's residence status. However, we will ensure that requests for information are kept to a minimum. With that reiterance, I ask that the amendment be withdrawn or rejected.

George Osborne: I accept what the Minister said about the powers needed by the Inland Revenue, despite the fact that they are wide-ranging, and we have only the Minister's assurance that they will not be overused or too onerous. Those powers include the power to request information from anyone in receipt of child benefit. Since child benefit is almost universal, we are giving the Inland Revenue the power to intervene and request information from virtually any parent in the country. However, given the Minister's assurance, I will withdraw amendment No. 181.
 However, I am minded to press amendment No. 62, because I have not received an adequate explanation from the Minister. She said that the treatment of child trust fund income would remain under review. She also gave broad pledges that, although the Government believe that the problem is some way off and they have dealt with it in the short term by increasing the disregard from £3,000 to £6,000, they accept that there is problem. Mr. Holgate was more forthcoming in acknowledging that there is a problem with the interaction between the child trust fund income and benefits received at the age of 18. 
 I understand some of the complexities in dealing with the income that the Minister spelt out. The income might be moved into another account, but there must be a device to protect it. After leaving full-time education, people often enter periods of unemployment, but that is not long-term unemployment. I agree that the money sitting in a child trust fund might be taken into account after years of unemployment. However, there is also a strong case for allowing an 18-year-old to find their feet in the job market and find a secure and stable job. In the process of trying to find the right job, they should not have their child trust fund, which has been built up for them by parents, relatives and the Government, snatched away. I think that that is a problem and I think that the Government have acknowledged that there is a problem. 
 The Chairman of the Treasury Committee hoped that the Government would be more forthcoming in this Committee, but they have not been, so although I shall withdraw amendment No. 181, I shall press amendment No. 62 to a vote. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Amendment proposed: No. 62, in 
clause 15, page 8, line 12, after 'fund', insert— 
 '(ee) anyone responsible for the determination of matters specified in section [income disregard for purposes of income-related benefits, etc.](2),'.—[Mr. Osborne.] 
 Question put, That the amendment be made:—
The Committee divided: Ayes 2, Noes 9.

Clause 15 ordered to stand part of the Bill. 
 Clause 16 ordered to stand part of the Bill.

Clause 17 - Use of information

George Osborne: I beg to move amendment No. 182, in
clause 17, page 9, line 6, leave out subsection (2).

Joe Benton: With this we may discuss the following amendments: No. 183, in
clause 17, page 9, line 12, leave out from second 'the' to end of line 13 and insert 
 'collection of statistical information relating to child trust funds'. 
No. 184, in 
clause 17, page 9, line 22, after 'held', insert 'before April 2005'.

George Osborne: Fresh from my near victory on the previous set of amendments, we move to clause 17. Clause 15, which we have just debated, is about the power of the Inland Revenue to request information from individuals and providers. Clause 17 sets out the uses to which that information may be put.
 Again, the amendments would restrict the Inland Revenue to what I think would be the necessary powers. Of course, Governments always tend to take to themselves wide-ranging powers to collect and use information. Clause 17 is a classic example. It starts by saying that information held by the Revenue 
''may be used, or supplied to any person providing services to the Inland Revenue, for the purposes of, or for any purposes connected with, the exercise of'' 
functions relating to child trust funds. I fully accept those powers. I accept that it is sensible for the Revenue to have the power to pass information around to providers and, indeed, third parties of all sorts, such as the IT contractor, in connection with administering child trust funds. 
 However, subsection (2) jumped out at me when I was reading the Bill and devising amendments, because it seems to give the Inland Revenue powers to pass any information held for purposes relating to child trust funds to any person providing services or any third party in connection with the exercise of functions other than the administration of child trust funds. In other words, the Revenue—the Minister may correct me—may pass personal information about child trust funds, who holds them, where they live and how much is in the funds to any third party who is not connected with the administration of the funds in any way and does not need that information to do their job in the strict sense of administering child trust funds. 
 The power is incredibly wide. It gives Government a blank cheque and has enormous scope for abuse. Amendment No. 182 simply proposes to leave out the subsection. I do not believe that that would affect the administration of child trust funds in any way. It is up to the Government to justify why they need the power. 
 If the Government do not accept amendment No. 182, they might consider amendment No. 183. The explanatory notes to the Bill explain why they need the general power to pass on information about child trust funds. They state: 
 ''This would allow the Inland Revenue to use information about the CTF for statistical purposes in assessing the success of savings policies.''
We all want the Inland Revenue to assess the success of savings policies, and the hon. Member for Yeovil has tabled various amendments that would require assessment of the success of savings policies—particularly the one that we are considering. Amendment No. 183 would merely provide a safeguard; the passing on to third parties of the information that the Inland Revenue will hold on all of us who will hold child trust funds in our children's names would be restricted. It would be possible to pass it on to third parties only for the collection of statistical information relating to child trust funds—that is, only for the activity that the Government have given as the reason why they need the power. 
 Amendment No. 184 offers another protection to the citizen against the ever-mighty Executive in relation to subsection (4). The explanatory notes state: 
 ''Subsection (4) allows other government departments to provide information to the Inland Revenue or one of its contractors for purposes connected with the CTF. The Inland Revenue will need to use information provided by the Department for Work and Pensions (DWP) or the Northern Irish equivalent to assess the eligibility for supplementary contribution of children born after 31 August 2002 but before the launch of CTF accounts. This group will include children in households unable to claim child tax credit as this was not introduced until April 2003 and children whose parents are receiving other benefits and will only transfer to child tax credit in the tax year 2004-05.'' 
We have had debates in Committee about those groups, and, of course, given the fact that the Government have made the strange decision to administer the scheme through the Inland Revenue, it is sensible to obtain information from the Department for Work and Pensions. That was the subject of an early debate in this Committee. 
 Subsection (4), however, makes the power to take information from other Government Departments open-ended, although it deals with a specific and time-limited problem, concerning people born between 31 August 2002 and the end of the 2004 tax year. Therefore, amendment No. 184, which I tabled, would insert a safeguard into the subsection, by restricting the information that the other Departments could pass to the Inland Revenue to information held before April 2005. That would just be an extra guarantee for the citizen that the information that the Government will inevitably collect about people in relation to child trust funds would be used for a proper purpose—the efficient administration of child trust funds—and no other. 
 The amendments are in general probing amendments, but there is an important principle behind them. If we had been sitting in a Committee like this 100 or 200 years ago, the power of the Inland Revenue, the tax man and the excise man would have been the sort of thing that people rioted about. It is only fair that every time the Government try to extend the Inland Revenue's power and its ability to intervene in people's lives, collect information on them and pass 
 it round Whitehall—or even to third party contractors, these days—the Minister of the day should have to justify it.

Hilton Dawson: I should like to make a couple of points about children in local authority care. It is important that we preserve young people's rights to confidentiality—especially the rights of young people approaching the age of 18, when they will leave care and gain access to their child trust fund. I hope that my hon. Friend the Minister will reassure me that those matters are being discussed with local authorities at the moment.
 Plainly, it would be possible for someone—a residential worker, foster carer or social worker—who had worked with a child or young person throughout their time in care to know a great deal about what was in the child trust fund. They might be entirely properly working with them to build up that fund and helping them to learn the use of money and the value of saving. 
 At some point the statutory duties of local authorities, especially in relation to young people leaving care, would kick in. Some local authorities pay substantial grants to young people to help them to set up when they leave care as part of the statutory duties under the Children (Leaving Care) Act 2000. A few local authorities also pay substantial maintenance to support young people going into higher education. In the spirit of earlier debates, I believe that it would be entirely inappropriate for local authorities to tailor their financial support for children to take account of young people's worthy efforts to build up their individual trust funds. It is also an important principle that the child's privacy in relation to what is in the trust fund should be respected. Therefore, neither they nor anyone who has worked with them or any other official who is connected with the trust fund should have any right or necessity to report the amount of money in the trust fund to anyone else in the local authority who is making decisions about the level of financial support or other forms of material support that could be made available to them.

Ruth Kelly: I will consider the points made by my hon. Friend the Member for Lancaster and Wyre (Mr. Dawson) and respond to him in due course.
 I hope that I can reassure the hon. Member for Tatton and other members of the Committee that there is nothing sinister about clause 17, which is simply to allow the Inland Revenue to do a good job in administering the child trust fund. The hon. Gentleman is labouring under a misapprehension about the third party who could potentially have access to the information. I can confirm that the person providing services referred to in the Bill is always the IT contractor and only the IT contractor. The information is not available to all and sundry who might have an interest in it. 
 The clause also enables other Government Departments to have the information, which would be necessary were we to decide to do something different 
 for disabled children for example, in which case information would have to be shared between the Inland Revenue and the Department for Work and Pensions. On those grounds, I hope that the hon. Gentleman will reconsider his objection to the proposal. 
 To expand on my remarks, it is the intention that the Inland Revenue could use the information not just for statistical purposes but for evidence-based policy making, which is slightly broader. There would be public interest in our following a cohort of children—those who left school at the age of 16 or those who went into further education, for example—to see what use they made of the child trust funds. The clause allows us to develop our policy on the basis of evidence rather than the contrary. For those reasons, I hope that the hon. Member for Tatton will ask leave to withdraw the amendment, although as I said, I will consider further the points made by my hon. Friend the Member for Lancaster and Wyre.

George Osborne: I would be interested in any further consideration that the Minister gives to what the hon. Member for Lancaster and Wyre said. Perhaps we could return to the matter on Report in a broader debate about local authority care. However, that is not my decision.
 I will not press amendment No. 184 to a Division if it will in any way jeopardise the progress made by my hon. Friend the Member for Witney in getting the Government to consider a scheme for disabled persons and their families. He would be devastated if he knew that I had sabotaged his progress. I would have to send two bunches of flowers rather than one.

David Laws: It would be in The Daily Telegraph.

George Osborne: It has been in the papers, so that is even worse. Things that appear in the papers are generally true. I will not press the other two amendments either. I accept the Minister's assurance that when the Bill refers to
''any person providing services to the Inland Revenue'' 
that means the IT provider. It does not read like that but I will take her word for it. I accepted that there would be a need to use information for statistical purposes. The point of amendment No.183 was to restrict the Government's powers to do that. The Minister has repeated the assurance that is in the explanatory memorandum. 
 I look forward to the Inland Revenue's version of ''Seven Up'', the programme that followed people every seven years. I can just imagine interviews with 18-year-olds holidaying in Ibiza about what they did with their child trust fund. That will be a problem for the Government of the day. As the Liberal Democrats will doubtless still be in opposition they will be able to say, ''I told you so.'' We will wait for 18 years to see the 
 results of that. As I also want to see what happens to this money when people reach 18, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 17 ordered to stand part of the Bill. 
 Clause 18 ordered to stand part of the Bill.

Clause 19 - Payments after death of child

George Osborne: I beg to move amendment No. 193, in
clause 19, page 10, line 15, after 'representatives', insert 'or executors'.

Joe Benton: With this it will be convenient to discuss the following: Amendment No. 185, in
clause 19, page 10, line 18, at end insert 
 'or a child to whom subsection (2A) applies. 
 (2A) This subsection applies to a child if— 
 (a) the child was born after 31st August 2002, 
 (b) a person was eligible for child benefit in respect of the child, and 
 (c) the condition specified in subsection (2B) is met. 
 (2B) That condition is that the Inland Revenue is satisfied that the circumstances of the death of the child provide reasonable grounds for the failure of a person eligible for child benefit in respect of the child to establish his entitlement. 
 (2C) Subsections (3) to (6) of section 2 apply for the purposes of determining eligibility under subsection (2A)(b) of this section as they apply for the purposes of determining entitlement under that section. 
 (2D) Regulations made under section 2(7) may also amend subsection (2A) of this section by substituting for the reference to 31st August 2002 a reference to an earlier date specified in those regulations in respect of section 2(1).'. 
Amendment No. 169, in 
clause 19, page 10, line 33, at end add— 
 '(5) Regulations shall be made to set out how payments will be made under this section without giving offence to parents after the death of their child and these regulations shall specify whether a parental request will need to be received by the Inland Revenue before a payment under this section is made.'. 
Amendment No. 170, in 
clause 19, page 10, line 33, at end add— 
 '(5) Regulations shall be made in relation to making payments under this section where the relevant child has been unlawfully killed.'. 
Clause stand part.

George Osborne: The clause deals with the extremely tragic circumstances in which a child dies before they have reached the age of 18. As I understand it, the child trust fund would usually pass to the child's parent or, if the child was married, to their spouse or their child if they had a child. That is because in England, Wales and Northern Ireland, children under the age of 18 cannot make a will and so normal intestacy rules apply. Curiously, in Scotland a child can make a will at the age of 12 or over.
 My amendment is intended to prise out of the Government some answers. First, can any parent whose child dies receive this payment, whether or not they have managed to set up a child trust fund or to 
 apply for child benefit? It is possible to envisage situations in which a child who is sick at birth dies within the first few days or weeks. Obviously the parents do not get around to applying for child benefit because understandably they have other things on their mind. This sum of money will not make a huge amount of difference but there could be some fairly rough justice. Parents who have applied for child benefit and established a child trust fund a week or two after the child's birth will receive this money and those who have not and were not told that they needed to do so will not. 
 None of this will compensate such parents for the loss of the child, but we know as constituency MPs how people can become very focused and, frankly, obsessed with what they regard as small slights by the state in tragic situations. I would not want the Government to find themselves in a position where a parent can say, ''I have not received this money when I should have done and it shows that the Government do not care about the death of my child.'' I am trying to help the Government to ensure that they have considered all the permutations of the matter, and to ensure that parents who have not applied for the child benefit, but who would have done and would have been eligible, receive the child trust fund money. 
 I also have questions—not strictly related to my amendments—about children in care. Normally, I would imagine that a child in care would have no estate when he or she died. However, because of this proposal, many children who previously would have left nothing on their death, will leave something. What will happen in that situation? Does the fund revert to the parents, even if they had no part in the upbringing of the child? The child might be in care because the parents abused him or her, and in such a situation it would be extraordinary if they received a financial reward. 
 I do not wish to tread on the territory of my Liberal Democrat colleague, but his amendment No. 170 attempts to raise that question with regard to a child who is unlawfully killed. That raises the question of when a child could be lawfully killed, but I shall leave the hon. Gentleman to explain that to the Committee. However, the purpose of his amendment is clear: we need some discretion. 
 The matter is very current: I was on the GMTV sofa at 6.20 this morning discussing the Sally Clark case. There will, however, be cases in which a mother or father has killed their child. Is it right that in those circumstances the child trust fund should go to the parent? I am sure that that is the thinking behind amendment No. 170, and I support it. 
 I also support amendment No. 169, and will make a general observation on what I imagine is the purpose behind it. The matter that it addresses is one of great sensitivity, and one would assume that the Inland Revenue would tread carefully in dealing with grieving parents.

David Laws: Amendments Nos. 169 and 170 are in the spirit of the probing amendments tabled by the hon. Member for Tatton. To some extent the hon. Gentleman has anticipated the comments that I intended to make. Both the amendments deal with sensitive issues, which we hope will affect only a small number of people. However, it seems sensible to consider them at this stage in the Bill, to ensure that we take every opportunity to avoid giving offence to people.
 Amendment No. 169 seeks additional information and guidance from the Government on how the Inland Revenue will deal with a situation in which a child has died before a payment. We could be considering the initial contribution—a child may have died at an early age. In those circumstances, as the hon. Member for Tatton said, a family will be grief-stricken, and the way in which the Inland Revenue interacts with that family over the issue could give huge offence. 
 The issue is difficult for both the Inland Revenue and the Government. Some people might take offence at the idea that the Inland Revenue had not made a payment that was due to them when a child had died. However, other parents might identify the child trust fund entirely with the individual child, and when that child had died, they might therefore be extremely upset to receive communications from the Inland Revenue about a payment being made in those circumstances. Those of us who have known parents who have lost children at an early age will know what a difficult time that is, and how long-lasting it can be. I hope that the amendments will prompt the Inland Revenue, if it has not done so already, to consider how it should interact with parents under such circumstances, particularly where children have died very early in their lives. I hope that consideration will also be given to the appropriate communication by the Inland Revenue of the entitlements that will be established by the Bill. I am not questioning that those entitlements are the wrong ones, or that the Government should not make payments under those circumstances, but I can see scope for grave offence being given. Different parents will respond to communication from the Inland Revenue in different ways. The Government need to bear that in mind when considering that process. 
 As the hon. Member for Tatton may already have anticipated, amendment No. 170 deals with an even more sensitive situation, where a child has been killed by the parent. Is there a law that already deals with such circumstances and anticipates how the child trust fund revenues would be allocated? Is that something for the child trust fund regulations? If it is, will the Minister confirm that, under those circumstances, the Government would not make payments from the proceeds of the child trust fund account to the parent?

Ruth Kelly: The clause deals with the tragic situation that hon. Members have outlined, where the child dies before the Inland Revenue has made a child trust fund payment that would otherwise be due. It also deals with cases where a child trust fund payment has been paid but has not been credited to a child trust fund before the death of a child.
 Amendment No. 185 would enable the Inland Revenue to make payments to personal representatives of a child if the child has died and an entitlement to child benefit has never been established for the child. The Committee has already discussed the issue, during the debate on clause 2, which concerned reasons for basing eligibility for the child trust fund on entitlement to child benefit. Child benefit will act as a clear and secure pathway to the child trust fund payment. There will be a straightforward mechanism under which separate claims for the child trust fund will not be required. If a parent claims child benefit, eight weeks of benefit is awarded, even though the child has died. I took the decision that no separate payment or claim would be needed for the child trust fund in such circumstances. That would be the least intrusive approach as the parents would already have contacted the child benefit office. It seemed too bureaucratic to ask them to apply yet again for the child trust fund. If parents do not contact the child benefit office, I think that it is wise to assume that they would not wish to be contacted to have their eligibility assessed. On that basis, I ask hon. Members not to press that amendment. 
Amendment No. 193, amending clause 19(1), says that 
''the Inland Revenue may make a payment to the personal representatives'' 
after the death of a child. Payments made under this clause will go the deceased child's estate. ''Personal representatives'' covers both ''executors'' and ''administrators'', and that is applied throughout the UK. That point will be checked with parliamentary counsel, but I think that that amendment is also unnecessary. 
 I should like to deal with the other points that have been raised: first, what happens to children in care? Payments can be made to personal representatives of children in care who have died. The clause sets out the fact that the Inland Revenue has the ability to make such a payment: it says that the Inland Revenue ''may'' make a payment to parents. However, that would clearly not happen in cases such as that cited by the hon. Gentleman, where there has been an unlawful killing of the child by the parent. Clearly, payments by the Inland Revenue in such cases would not be appropriate, and that power would not be used.

David Laws: On the earlier point about the circumstances in which a payment would be made when a child had died, particularly very early in its life, and where the child benefit claim had already been made, can the Minister anticipate that a parent receiving a payment relating to the child's CTF account could take great offence at that, even if the Government had the best intentions? Can she say something about that process? Will parents be given any choice, bizarre as that may seem, whether to receive that payment? Alternatively, will a parent receive a payment in the name of the child who died weeks or months before? I hope that the Minister understands that I am not trying to make an unhelpful point, but it is possible that even though the money
 might be paid out with the best possible intentions, it could give offence to people in those difficult circumstances.

Ruth Kelly: I understand the hon. Gentleman's point. We are firmly of the view that the approach that I have outlined is the most sensitive. The alternative is that the parent contacts the child benefit office, decides that they wish to receive the eight weeks' payment of the child benefit after the death of a child and then we contact them yet again to ask whether they wish to receive the child trust fund payment.
 The clear link, on eligibility, between the child trust fund and the child benefit system, which we established in earlier debates, represents the most sensitive way of dealing with the problem. The parent should have to make contact with the system only once to receive money that should rightly be in the estate of their child. There are no easy answers to such questions, which are clearly very sensitive, but we are of the opinion that the approach that we have set out is the least intrusive available. On that basis, I ask the hon. Gentleman to withdraw the amendment.

George Osborne: This is a sensitive issue and the Minister demonstrated in her answer that she has thought about it carefully. She made the point, and it is the first time that I have heard it, although it is in the Bill, that there is a discretionary element to what the Inland Revenue does. Subsection (1) states that the
 ''Inland Revenue may make a payment''. 
One would assume that it would exercise that discretion in horrific circumstances such as cases in which a child had been murdered by their parents or subjected to abuse by them and put into care as a result. It was good to hear the Minister's remarks on that. 
 In a way this is a new situation for the Government. Of course, some children do have large estates, but most do not, so it is unusual on the death of a child for there to be any money that needs to be formally allocated. Unfortunately, children die every day in our society and the Government and the Inland Revenue may find themselves involved in a sensitive area that has not normally concerned them in the past. However, I was reassured by the Minister's comment that the issue has been carefully considered, and I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 19 ordered to stand part of the Bill.

Clause 20 - penalties

David Laws: I beg to move amendment No. 156, in
clause 20, page 10, line 36, leave out 'of £300' and insert 'not exceeding £3,000'.

Joe Benton: With this it will be convenient to discuss the following:
 Amendment No. 186, in
clause 20, page 10, line 36, leave out 'of £300' and insert 
 'not exceeding £3,000 or a period of imprisonment for a term not exceeding 1 year'. 
Amendment No. 187, in 
clause 20, page 11, line 14, leave out '£300' and insert '£3,000'. 
Amendment No. 188, in 
clause 20, page 11, line 20, leave out subsection (5). 
Amendment No. 189, in 
clause 20, page 11, line 41, leave out '£300' and insert '£3,000'.

David Laws: We now move on to a slightly more mundane subject: the penalties that can be imposed by the Inland Revenue in respect of fraudulent or negligent claims.
 Amendment No. 156, which the Liberal Democrats have tabled, and amendment No. 186, which the hon. Member for Tatton will discuss, deal with subsection (1), which allows the Inland Revenue to impose a penalty of £300 on anyone who fraudulently applies to open, makes a withdrawal from or secures the opening by the Inland Revenue of a CTF account. Subsection (2), which we must also hold in our minds when we consider the issue addressed in amendment No. 156—and to some extent amendment No.186—also allows the Inland Revenue to impose a penalty not greater than £3,000 on 
 ''(a) an account provider who fraudulently or negligently makes an incorrect statement or declaration in connection with a claim under section 8 or 9 or regulations under section 10 or 13, and 
 (b) any person who fraudulently or negligently provides incorrect information in response to a requirement imposed by or under regulations under section 15.'' 
Is the £300 penalty in subsection (1) an adequate deterrent? Is it proportionate compared with the penalty in subsection (2)? In tabling amendment No. 156 I was concerned that the £300 penalty seems low compared with the potential to defraud a CTF account of up to £500—the sum involved if the account is being opened with the larger Government contribution. There is an element of tough liberalism here, as my hon. Friend the Member for Winchester (Mr. Oaten) would say.

Andrew Love: But it is not as tough as Toryism.

David Laws: No. I will deal with that in a moment. It is not every day that we suggest that the Government have been too weak in giving themselves the power to impose a fine of only £300. We have suggested instead that the penalty could be greater than that and may increase up to £3,000.
 We tabled the amendment only to be ruthlessly outflanked by the hon. Member for Tatton, who not only wanted to allow the penalty to be raised from £300 to £3,000, but would give the Inland Revenue the option of a period of imprisonment for a term not exceeding one year. It would be appropriate for the Minister to say whether she wants to take on powers of imprisonment. I am a little bit concerned about the hon. Gentleman's proposals. 
 As I understand it, clause 21 makes it clear:
 ''It is for the Inland Revenue to propose a penalty under section 20.'' 
Perhaps I have got that wrong. It seems as though the hon. Gentleman would give the Inland Revenue the power to imprison people, which is something at which even the Prime Minister and the Home Secretary would baulk, or perhaps not. We wait to see whether the Government will table their own amendment, which may have an even more draconian effect and send people away to some offshore island to do hard labour. I am not sure whether I would go as far as the hon. Member for Tatton. He will speak to his own amendments in a minute. 
 There is a question whether the £300 penalty is sufficient. I also question whether it is proportionate, considering that a penalty of £3,000 has been allowed under subsection (2). I acknowledge that the higher penalty is for the providers; presumably, the Government consider that a higher penalty is appropriate for them because they would have a greater ability to pay. However, the clause says that account providers would be subject to the £3,000 penalty for fraudulent and negligent claims. It seems disproportionate that under subsection (1) there is the power to impose only the £300 penalty on somebody who wilfully intends to defraud the Exchequer on opening a CTF account, or withdrawing money from one, whereas under subsection (2) somebody who merely makes a negligent claim can be subject to a £3,000 penalty. 
 I hope that the Minister will consider that tough liberalism approach, and the potential benefits to the Exchequer of the additional fine income that would result, which I am sure she would be able to spend in many interesting ways.

George Osborne: In alliance with my Liberal Democrat colleague I am attempting to be tougher on crime and tougher on the causes of crime. I support amendment No. 156, which increases the maximum penalty from £300 to £3,000 for persons who fraudulently seek to open a child trust fund and exploit the scheme. As he said, it seems strange that although they stand to gain £500 from trying to fraudulently open a fund, the penalty is only £300. That makes no sense, because it provides a clear financial incentive to have a go. My amendment would add the possibility of a period of imprisonment. I am not seeking yet to reopen debtors prisons throughout the country but, as the Minister says, the Inland Revenue would not be in a position to lock up people in the bowels of the Treasury. However, the principle, if not the practice, of what I want to achieve is correct.
 Surely the Crown Prosecution Service should at least have the option of applying for a custodial sentence, and judges and magistrates should have the option of imposing one. I say that because it is possible to imagine not merely one-off frauds or negligent claims, but large-scale fraud. We are hoping that that will not be the case. I think that the Government are right to say that the product will be a low risk in terms of fraud, but it is possible to imagine a scam in which someone opens hundreds of CTF accounts and, in those circumstances, it would be strange if there were 
 no prison sentence. Perhaps the Minister will say that, in the process, people are bound to break other laws that will give the courts powers that the Bill does not. I should be interested to hear that from the hon. Lady. 
 Amendment No. 187 would increase from £300 to £3,000 the penalty on a financial provider that fails to make a claim for the initial, supplementary additional contribution. It is only fair to give the courts or the Inland Revenue, in this case, some discretion. It is possible that, through blatantly poor management, a financial provider will not do its job properly and, as a result, people lose out because their fund is not accumulating income. The Inland Revenue should therefore have a wider scope of financial penalties available to it. 
 Amendment No. 189 would do the same for other regulations in respect of account providers. Amendment No. 188 would remove from the clause subsection (5), which states: 
 ''No penalty . . . may be imposed on a person in respect of a failure after the failure has been remedied.''
 That seems unnecessarily lenient. Let us suppose that someone goes to a provider, opens a CTF account, expects the provider to apply to the Inland Revenue to put initial funds into the account so that some income can start being earned, but the provider fails to take such action. What will happen a year later when the person is sent an annual statement, notices that he does not have a child trust fund and complains? 
 As I understand it from subsection (5), provided that the financial provider steps in immediately and says that the problem will be rectified, so no worry should be expressed about it, no penalties would be available to the Inland Revenue. All I am suggesting is that the Inland Revenue should at least have available to it some flexibility. Even if it is clear that the provider has corrected the mistake, it should be punished for making the mistake in the first place, and that should act as an incentive for it not to make future mistakes. In those circumstances, the Inland Revenue should have at its disposal the power to impose a fine.

Ruth Kelly: Much as, I am sure, the Inland Revenue would love to have the power to lock people up for fraudulently claiming child trust funds, our aim is to develop a proportionate regime. At investor level, it is conceivable that there could be attempts to counterfeit vouchers and to open fraudulent or even multiple CTF accounts. However, the system that we have designed means that we will identify the vouchers when they are presented and, most importantly, before any Government endowments are paid into the account.
 We have tried in the clause to mirror as closely as possible the penalty provisions that already exist in the system. The sum of £300 regularly appears in income tax and tax credit penalty provisions. Levying a fixed penalty of £300 will provide certainty, and we will avoid having to administer an abatable penalty, which can be reduced to take account of factors such as gravity, co-operation and disclosure, if a sum is sought that the Inland Revenue can levy without having to take account of such complexity. Of course, we would attempt to recover any Government endowments, if they had been paid, and the tax relief that was paid into 
 the child trust fund. I believe that the penalty provision in the Bill is sufficient to deter non-compliance and is commensurate with the risk in all but the most serious cases. 
 The hon. Member for Tatton outlined some examples of what might be considered to be a serious case, such as a multiple fraud. In all such cases the Inland Revenue would seek to prosecute and not to levy penalties. That is an option. There is no reason why a serious term could not be imposed for serious fraud. 
 There is no reason, on the face of the Bill, to put down such a penalty of imprisonment. The penalties for child trust fund providers are very much based on existing penalty provisions for ISAs and other similar schemes. The reason that the penalty has been set at £3,000, rather than £300, is not because providers are more able to pay, rather that there is more money at risk. If the provider, as it were, deals with a particular account in a certain way, it is much more likely that other accounts will also be affected. 
 The child trust fund has been modelled, to a considerable extent, on ISAs. The Inland Revenue's experience of administering ISAs and other schemes shows that the penalty levels are sufficient to ensure compliance with the operational rules. I certainly believe that the penalties, as set out in the Bill, are sufficient to ensure compliance and that they are proportionate. I would ask the hon. Gentleman to withdraw his amendment.

David Laws: I shall not press this to a vote. I am reasonably reassured by the Financial Secretary's comments, particularly the clarification that the Government and the Inland Revenue would seek to prosecute in very serious circumstances. I am not sure that the Financial Secretary's statement that the fine is intended to be proportionate to the amount at risk necessarily holds. I believe that those penalties also relate to withdrawal from child trust fund accounts that have been ongoing and in existence for a period of time, where potentially somebody could withdraw a much larger amount. However, in view of the assurances from the Financial Secretary, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 20 ordered to stand part of the Bill. 
 Clauses 21 to 26 ordered to stand part of the Bill.

Clause 27 - Commencement

David Laws: I beg to move amendment No. 145, in
clause 27, page 15, line 12, after 'section', insert
'section [report on savings effect of child trust funds],'.

Joe Benton: With this it will be convenient to discuss the following: Amendment No. 147, in
clause 27, page 15, line 17, at end add—
 '(4) No order may be made under subsection (3) until the report specified in section [report on savings effect of child trust funds] has been laid before Parliament.'. 
New clause 5—Report on savings effect of child trust funds— 
 'The Treasury shall lay before each House of Parliament a report setting out the Treasury's estimate of the net increase in saving which will result from the provisions of this Act.'. 
New clause 13—Annual report on effect of child trust funds on wealth distribution— 
 'The Treasury shall lay before each House of Parliament every year a report setting out the Treasury's assessment of the effects of the provisions of this Act on wealth distribution in society.'.

David Laws: Amendments Nos. 145, 147 and new clause 5 should be taken together, because amendments Nos. 145 and 147 are essentially enabling mechanisms for new clause 5. New clause 5 invites the Treasury to lay before each House of Parliament a report setting out the Treasury's estimate of the net increase in saving that will result from the provisions of the Act. There was a significant exchange between the Minister, her officials and the Treasury Sub-Committee on this matter. I have given the Treasury Sub-Committee enough publicity during the course of the Committee hearings, so I will not go over the questioning once again, including that by the hon. Member for Bury St. Edmunds (Mr. Ruffley).
 We detected an unwillingness—although no more than that—on the part of the Financial Secretary and her officials to indicate whether they thought that the Child Trust Funds Bill would work in practice. I recall that the Financial Secretary talked about evidence-based policy making. However, policy making in respect of the Child Trust Funds Bill does not appear to be evidence-based at all, but rather based largely on speculation. Surely, if the child trust fund account is to be of any success at all, we must have not necessarily a target for additional saving—the Minister said that she does not want to get tied to that, which I understand, given the relative failure of many other Government targets—but an impression of how much the Government believe the measure will affect the total stock of savings in the United Kingdom. We have no estimate of that at all. If this is evidence-based policy making, the Government will have done work on how much additional saving will result from the Bill. Otherwise, why would we need it at all? If we simply wanted to give a stock of financial assets to a young person at the age of 18, then, as the Institute for Fiscal Studies has pointed out, this convoluted mechanism would not be needed—we could send them a cheque at that age. We could improve financial education through the education system, which might be more effective than allowing parents to manage the accounts, presumably, as we have heard, with little involvement on the part of the child. 
 Before the Bill is enacted, the Government owe us an explanation of how much effect the fund will have on savings, and of the basis for such an estimate. I hope that the Minister will touch on the implications not only for child trust fund holders' savings, but for the national balance between savings and investment. 
 It will occur to many Committee members that the Government do not have any of their—or our—money to place in the child trust fund accounts and boost individual savings. Due to the huge public borrowing racked up by the Treasury, the Government will have to go to the international financial markets to fund the scheme and, presumably, issue gilt-edged stock. The Minister will borrow money, presumably for five or 10 years, to place in the trust fund accounts on behalf of the trust fund holders. I have not checked the yield on gilts today; perhaps it is 5 per cent., or something of that order. Then she will invite child trust fund holders to invest the money. Some may invest in deposit accounts, but unfortunately they will be borrowing at 5 per cent. and depositing at perhaps 3 or 4 per cent. Others may be persuaded by the Financial Secretary's enthusiasm for equity investments, from which they will hope for yields of 6, 7 or 8 per cent. 
 The Government are inviting society to take a huge punt—to borrow money from the international financial markets at 5 per cent. and invest it in equities, in the hope that they will go up. If that works, it will be fantastic, although the money borrowed would have to be repaid in future years. The savings would not be net savings, but short-term savings on long-term debt. We would be borrowing money in the long term and investing in equities in the short term, hoping to make money. However, if the equity market were to fall, as it has in many countries including Japan in recent years, we would increase our debt as a society, borrowing at about 5 per cent. and investing in equities that go down. The Minister may be inviting us to take a massive punt on which we may lose money. 
 We have invited the Minister to say how much additional individual saving will be initiated by the Child Trust Funds Bill; we also ask her to consider the implications for savings in the United Kingdom as a whole, and to remind us that to put the money into the child trust fund accounts as savings, we will have to go out and increase our borrowing. There will be no increase in the net savings of society as a whole merely as a consequence of putting money into child trust fund accounts. It would have an effect only if there was a second-order benefit, and other people decided to redistribute their income between consumption and savings. That means that, for many years to come, we will pay back the interest income on money that is supposedly used to boost savings. If the Minister gets her punt wrong, and the equity market performs unimpressively over the next 10 or 20 years, society will be poorer as a result of the Government's decision to borrow money in a financial market and encourage us to invest it in the equity market. 
 Those are two fundamental issues about the purpose of the policy, and I hope that the Financial Secretary will accept new clause 5 and agree that we need evidence-based policy making before the Bill is enacted.

Ruth Kelly: The hon. Gentleman persists in defining the success of the child trust fund largely in terms of developing the savings habits of parents and encouraging the shift between consumption and
 savings. Occasionally, he admits that it may impact on the assets available to a child at the age of 18, but he persistently ignores the objectives of helping people understand the benefits of saving and investing, and building on financial education to make people better aware of the financial choices that they face through their lives. If the policy is successful, 18-year-olds will have a different range of opportunities open to them. That aspiration lies behind the policy, but it is not easy to set targets for or to measure.
 I shall tackle the specific point about targets for saving, and whether we should measure the success of the policy by how much money parents add to the account. I contend that the policy would be a far more significant success if children occasionally put a sum from their pocket money into the child trust fund account. That would result in a lower savings rate than the hon. Gentleman's implication that parents will pay a regular contribution, but it might have a more profound effect on the behaviour of an 18-year-old, and the choices that they subsequently make. Those reasons reflect the philosophy behind the child trust fund, which the hon. Gentleman clearly does not share, and his suggestions are therefore inappropriate. 
 The Bill represents an opportunity for families, parents and children. That does not mean that we will not monitor and regularly evaluate the plan as it progresses. We will of course set success criteria. They might include the extent to which parents understand the child trust fund, the extent that the fund increases savings by children as well as for children, and the assets built up in the long term. We would also examine the degree of financial awareness among children as well as parents. 
 Many objectives behind the Bill do not lend themselves to easy measurements and targets. The hon. Gentleman misunderstands the fundamental purpose of the Bill, and that is clearly expressed in his opposition to it. For that reason, I ask the Committee to reject the new clause and the amendments.

Joe Benton: I apologise to the hon. Member for Tatton for neglecting to notice that new clause 13 is in his name. I call on him to speak before the reply from the hon. Member for Yeovil.

George Osborne: Yes, I have my own clause in this group. New clause 13 asks the Treasury to
''lay before each House of Parliament every year a report setting out the Treasury's assessment of the effects of'' 
child trust funds on ''wealth distribution in society.'' I have sympathy with my Liberal Democrat colleague's remarks about his amendments and new clause. His attempts to extract hard information from the Government about what they think the likely effect of child trust funds will be in terms of the net increase in savings have been remarkably unsuccessful to date. That is despite repeated attempts by the Treasury Sub-Committee and this Committee, and on Second Reading. I am sure that we have all read the accounts of the evidence sessions in that Sub-Committee when the Minister repeatedly refused to set targets for what 
 she wanted to achieve. The Treasury is very keen to set targets for everyone else in Whitehall, but strangely reluctant to set targets for itself. 
 We can imagine what would happen if any other Department went to the Treasury and said, ''Look, we have a great idea, Chancellor. It hasn't been tried anywhere else in the world and we don't have much evidence to suggest that it'll work. We have a couple of encouraging surveys, but we haven't done any research and we do not propose to set any targets. The whole thing will cost £235 million a year. Will you sign on the dotted line?'' Of course, the Chancellor or the Chief Secretary would send that Department packing, but it helps if one is an insider in this Government and works within the Treasury when one comes up with expensive schemes that are not research-based or evidence-based. Indeed, it could be said that that is what happens when the Department that controls expenditure is itself turned into a spending Department. I predict that we shall see more of that as the Treasury takes on this sort of function. 
 New clause 13 would require the Treasury to publish an annual report on the effect of child trust funds on wealth distribution in society. The Financial Secretary has said repeatedly, including in the policy document originally, that child trust funds have four objectives: to help people to understand the benefits of savings; to encourage them to develop the savings habit; to ensure that all children have a secure financial asset; and to build on financial education. However, we know that she has a fifth objective. It is not spelt out in the policy document—she must have forgotten to include it—but she revealed it to the assembled luminaries at No. 10 Downing street when she addressed the Institute for Public Policy Research summit on child trust funds in 2002. Thankfully for the Committee's enlightenment, I have been able to obtain a copy of the minutes of that meeting. The relevant section is entitled 
 ''Response—Ruth Kelly MP (Financial Secretary to the Treasury)'' 
and states: 
 ''Ruth pointed out that overall distribution of wealth is far more skewed than that of income. The wealthiest 1 per cent. of the population possess approximately a quarter of all personal wealth in the UK. About a third of the adult population in the UK have no financial savings at all. What is more there are signs that wealth inequality is increasing.'' 
By the way, I intend to use that quote elsewhere. The Minister continues: 
 ''Part of the response to this situation has been the announcement of . . . the Child Trust Fund''. 
In other words, the Minister admits that wealth inequality is increasing under a Labour Government—it is good to have that on the record. She also says that child trust funds are part of the response to that situation. In other words, an objective of child trust funds is to reduce wealth inequality, if that is what being part of the response to the situation is. However, it is difficult to see how the Government will achieve that, even with the means-tested supplementary contribution, which we have discussed. 
 I suggest, as I did on Second Reading, that child trust funds may exacerbate wealth inequality in our society, because children from far better-off households will, at the age of 18, have assets worth £15,000, £25,000 or £35,000, whereas children from the poorest families, who will make no contributions, will have assets of £1,000. That is a clear inequality. Of course, children from better-off families have more assets in theory anyway, but even wealthier families tend not to save for their children. One survey has shown that remarkably few people save for their children, so in fact children from wealthy families do not have assets at the age of 18, whereas if the Bill is a success, they may have thousands of pounds worth of assets. 
 It is perfectly possible that child trust funds will increase, rather than reduce, wealth inequality. Like the Prime Minister, I do not think that that is a problem, because I do not think that wealth inequality is such an important measure. I remember him being pressed on that on the ''Newsnight'' programme during the general election. He repeatedly refused to answer Jeremy Paxman's question about whether it mattered if the gap between the rich and the poor was getting wider. The Prime Minister was right in saying that it does not matter, provided that the least well off in society are getting richer. I am happy to support the child trust fund on the grounds that it helps poorer families to build up assets, regardless of the effect that it has on better-off families. 
 I am not concerned about wealth inequality, because I share the Prime Minister's view, but I know that the Financial Secretary sets her course by a different star in the Government. In the IPPR summit, she identified the growing wealth inequality under Labour as a problem and said that child trust funds are part of the response. If the Financial Secretary is so confident that child trust funds will work and reduce, rather than increase, wealth equality, I should have thought that she would welcome new clause 13. It would give her a chance to demonstrate the success that her policy is having each year.

Ruth Kelly: The hon. Gentleman makes an interesting point about wealth inequality. I thought for a moment that he was going to announce that he had converted to a different course, and I was going to regret the fact that the Conservatives had not converted earlier. Now, it is revealed that he is not a convert, as wealth inequality does not matter to him.
 Wealth inequality matters to me not only because wealthy people have more than poorer people, but because it is possible to have a situation, as we did in the 1980s, in which poorer members of society have no stake in the system. They can have no assets behind them and no access to the opportunities that other people in society take for granted. Up to a point, wealth distribution is a proxy for the distribution of 
 opportunity in society. I am concerned that people from all income and wealth backgrounds have opportunities. In particular, that means enhancing the life chances of those on the bottom rungs in terms of both income and wealth.

George Osborne: Will the Financial Secretary repeat what she has said in private, which is that wealth inequality is increasing? It would be useful if we accepted that as a starting point. I fully accept her argument that we want to increase the assets, savings and wealth of the poorest, but she identified inequality—usually understood as the gap between the richest and poorest—as the problem. If she repeated her statement that wealth inequality is increasing, that would help us start from an agreed basis.

Ruth Kelly: The hon. Gentleman knows that wealth inequality figures, like income inequality and child poverty figures, always appear many years after the situation to which they refer. Speaking in 2001, I was clearly referring to the rapid rise in inequality that occurred under the Conservatives, so I cannot share his premise. As to whether wealth inequality matters, I would say that it really matters that children from across the social, income and wealth spectrum have as equal life chances as the Government can facilitate. That is what the child trust fund is intended to contribute to. It will not do all the work itself, but it will make a minor contribution.
 The hon. Gentleman described the policy as not being evidence based, but many studies have been carried out, not least the independent research by Deloitte, to which I referred extensively in the Treasury Committee.

George Osborne: Will the Government publish it?

Ruth Kelly: We are committed to publishing that research. The interim evidence from the savings gateway also shows that people on very low incomes have a willingness to set money aside. Survey evidence, which the hon. Gentleman seems to dismiss, suggests a great willingness on the behalf of parents, even in the D and E socio-economic groups, to put money aside for their children for the long term. I would imagine that that is partly because they recognise the significance that such an asset could have for their children at the age of 18.
 Those parents may recognise that more than wealthy families, whose children already have significant opportunities at the age of 18. Having a stock of financial assets behind them may not make such a big difference to the children of wealthy families, but a stock of assets will have a profound impact on children in poorer families. 
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.